Merriwell Corporation has a virtual monopoly in the ultra high speed computer market. Merriwell has recently introduced a new computer that will be used by satellite installations around the world. The installations have identical demands for the computers. Merriwell's managers have decided to lease rather than sell the computer, but they have been unable to decide whether to use a single hourly rental charge or a two-part tariff. Under the two-part tariff, users would be levied an access charge plus an hourly rental rate. Merriwell's marketing staff estimates a demand curve for each potential user given by P = 45-0.025Q where P = price per hour of computer time, and Q = the number of hours of computer time leased per month. Merriwell offers their users extensive maintenance assistance and technical support. The firm's engineers estimate that marginal cost is $30 per computer hour. Assume fixed costs are zero. If Merriwell charges a single rental rate, the optimal rate is 37.50 v $/hour and the optimal quantity is 300 Merriwell's profit in this case is $ 2250 v. If Merriwell uses a two-part tariff, the access charge is $ 4500 v and the hourly rental rate would be 2250 $/hour. In this case, Merriwell's profit is $ 4500

Merriwell Corporation has a virtual monopoly in the ultra high speed computer market. Merriwell has recently introduced a new computer that will be used by satellite installations around the world. The installations have identical demands for the computers. Merriwell's managers have decided to lease rather than sell the computer, but they have been unable to decide whether to use a single hourly rental charge or a two-part tariff. Under the two-part tariff, users would be levied an access charge plus an hourly rental rate. Merriwell's marketing staff estimates a demand curve for each potential user given by P = 45-0.025Q where P = price per hour of computer time, and Q = the number of hours of computer time leased per month. Merriwell offers their users extensive maintenance assistance and technical support. The firm's engineers estimate that marginal cost is $30 per computer hour. Assume fixed costs are zero. If Merriwell charges a single rental rate, the optimal rate is 37.50 v $/hour and the optimal quantity is 300 Merriwell's profit in this case is $ 2250 v. If Merriwell uses a two-part tariff, the access charge is $ 4500 v and the hourly rental rate would be 2250 $/hour. In this case, Merriwell's profit is $ 4500

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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